VAT Late Filing Penalty Waived: as “Disproportionate”

The First Tier Tribunal (Tax) completely discharged a VAT late filing penalty (aka “Default Surcharge”) of £70,000, which HMRC had charged the Trinity Mirror newspaper group for the late filing of two VAT returns, both of which were only one day late.

Trinity group had an unblemished VAT compliance record. But within the space of 1 year it filed 2 VAT returns late: albeit only 1 day late in respect of each. HM Revenue and Customs, in its wisdom, decided that a ”fair” VAT Default Surcharge penalty would be one which was effectively charged at £24 for each minute the returns were late! The total penalty they attempted to impose was £70,909: even after they had reconsidered the matter internally. Unsurprisingly, Trinity Mirror appealed to The First Tier Tribunal (Tax).

All parties agreed that the legislation did not allow the Tax Tribunal to simply reduce the penalty. The independent body could either uphold the penalty in full or completely discharge it. In a verdict published this April, the Tribunal judges decided that “a penalty must not be disproportionate to the gravity of the infringement” (i.e. filing 2 days late). In this particular case they felt that by charging such a large penalty – relating to a 1 day default – the taxman’s behaviour was “plainly unfair”, and that the penalty imposed was too “harsh”. The intention of the legislation is that “different breaches warrant different penalties and the gravity of the infringement is relevant. The gravity here is low, but the penalty is high.” As the Default Surcharges were disproportionate in relation to the offence of filing late (rather than to the amount of VAT involved), and they went beyond what was “strictly necessary for the objectives pursued”, the judges decided the penalties were excessive. Therefore, the Tribunal could not uphold the penalties. In the circumstances of the legislation they had no alternative but to completely discharge the penalties, i.e. reducing them to nil.

What does this mean for me?
If you are currently in a dispute with HMRC, you may find them very insistent about the application of the law: as they interpret it! HMRC may say that a senior tax inspector looked at the case, or that the issue has been considered by their technical specialists. It may even be that you have been unsuccessful by way of a Statutory Review. What this case proves yet again is that the Tax Tribunal takes a strictly impartial approach to the interpretation of the legislation. HMRC inspectors often “threaten” to take appeal cases to the Tribunal. In fact, the Tribunal is as much a shield for the taxpayer, as it is a sword for the taxman.

Do I need specialist help with my tax appeal?
The taxman uses specialist ‘Appeals’ teams to lead its cases at Tribunal. Lynam Tax Dispute Experts have decades of experience in handling contentious tax appeals, and can assist taxpayers and their accountants with the process; in order to achieve the optimum results.*If you need help with a difficult tax dispute or a contentious tax appeal call now for a confidential and no obligation discussion:
Paul Lynam: 0845 643 9997Andrew Nutbrown: 07718 778710